Consecutive months of record low interest rates have seen homeowners increasingly opting to overpay on their mortgages, new figures have revealed.
The Co-operative Bank said there had been a 56% year on year increase in the number of its customers choosing to pay more off their mortgage than they needed to.
With the Bank of England base rate having been at an historic low since March, those people on variable rate products were unsurprisingly found to be the most common overpayers.
Such borrowers were said to be three times more likely to be making overpayments than those on fixed rate mortgages.
As a result of the increasing trend, the bank has revealed plans to launch a pilot scheme, offering those customers who have already made significant overpayments in 2009 the option to make additional capital repayments of up to 50% of their entire mortgage, without penalty.
The capital repayments will sit outside the normal overpayment scheme, and will offer a permanent reduction in the capital outstanding, immediately reducing the outstanding balance of the mortgage.
It is hoped the scheme will offer customers a number of benefits, including the ability to obtain lower rate products available for lower loan to value mortgages, as well as reductions in monthly payments and/or the term of the mortgage.
Currently most of the bank's customers within their initial mortgage deal period are allowed to make overpayments of up to 10% of their mortgage balance per year, without any penalties. Customers on lifetime trackers and standard variable rates have no restrictions on overpayments.
"With interest rates continuing to remain at the current low level, we have been following developments in this area closely," said Terry Jordan, Head of Mortgages at The Co-operative Bank. "Many economists are predicting that the interest rate environment will remain low into 2010, so we will be monitoring this pilot scheme in detail, with a view to rolling it out across more customers next year if it is successful."
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